Workers Comp or Income Protection?
When it comes to insurance that protects tradies in the event of injury there are a few options.
Some of the common terms you may come across include the following:
- Worker’s Compensation
- Work Cover
- Income Protection
- Disability Income Insurance
- Sickness & Accident Insurance
- Accident & Illness Insurance
- Injury & Illness Insurance
Although each of these terms relate to a way of covering yourself financially in the event of suffering an injury, or in some cases an illness, they are actually all quite different.
The main aim of this guide is to explain the differences between workers compensation and income protection, but we will also be touching on some of the other terms listed above.
Worker’s Compensation
Also known as work cover or worker’s comp.
If you are working as an employee on wages (i.e. you don’t work under your own ABN) then you should be covered by your employer’s workers compensation insurance.
This form of insurance is mandatory for employers to take out, and protects their staff in the event that they suffer a serious injury on the worksite.
The term ‘Work Cover’ is used to describe this form of insurance in some cases, but it is actually just the name of the State Government body that looks after worker’s comp in most Australian states.
Unlike income protection, worker’s compensation does not pay an ongoing income to you. Instead it pays for expenses such as medical and rehabilitation costs etc.
Income Protection Insurance
Also known as Disability Income Insurance or Income Replacement Insurance.
Income protection is a form of insurance which can replace the majority of your income for a period of time if you are unable to work due to an injury or an illness.
The main difference between this insurance and worker’s compensation is that income protection does not pay additional amounts for medical expenses, and is instead designed to replace your income.
You can read more about this cover on our dedicated income protection for tradies page.
Sickness & Accident Insurance
Also known as Accident & Illness or Injury Illness insurance.
Sickness & accident insurance is very similar to income protection in the way that it works, however in many ways it is an inferior form of cover.
Rather than going into too much detail in this guide, we recommend that you visit our dedicated page on sickness and accident insurance which explains some of the important differences.
Which Is Best?
So which form of insurance is the best option for a tradesman?
First of all let’s compare workers compensation and income protection.
Aside from the fact that they work in quite different ways, their usage will also depend on whether you are an employee, a sole trader, a subcontractor or a business owner.
In most Australian states, sole traders (which includes most subbies) are not eligible for worker’s compensation, meaning that income protection is the only option.
But even if your business is able to take out worker’s compensation, it is important to remember that only income protection can offer a long term solution to your financial needs.
When it comes to income protection versus sickness & accident insurance, generally speaking an income protection policy issued by a life insurance company (such as AMP, MLC etc) will offer a more comprehensive level of cover.
Getting Advice
If you are unsure of which option is going to work best for you, the best way to go is to speak with an insurance adviser who is familiar with how the building and construction industry operates.
Whilst any insurance adviser should be able to assist you, one who specialises in trade insurance will have a better understanding of the different needs of employees, subbies and business owners etc.
